Russia pivots towards industry, not reliant on oil - Medvedev

​There is more to the Russian economy besides oil and mineral exports, Prime Minister Dmitry Medvedev said Tuesday. He also promised productivity will grow 50 percent in the next five years, which followed a severe bout of stagnation in industrial output.

Russia’s Prime Minister lauded state plans to boost industrial
production, and refutes accusations the economy is running on
petrodollars.

“There is a widespread belief that Russia’s only strength is
oil and gas, that we live off of oil export revenues and produce
nothing. Actually, this statement doesn’t reflect the real
picture of our economy, which is based on manufacturing and where
industrial production plays a very important role,” Medvedev
said on his video blog Tuesday.

Oil prices, which have reached historic highs, are liking to fall
as sharp supply increases from the Gulf of Mexico, the US, and
South America are slated to send prices down in 2014. Russian oil
output, the largest in the world, reached 10.61 million bpd
(barrels per day) in November.

January’s WTI crude future was $98.54 per barrel and Brent Crude
was $110.23 at the time of publication.

Oil and gas revenues account for more than half of Russia’s
budget revenue, which makes the economy sensitive to price
volatility. Russia has amended its budget to prepare for a dip in
benchmark oil prices, planning scenarios for crude prices below
$80, even $60 per barrel. Russia has signaled it is ready for
prices below $95 per barrel.

The IEA says the US will overtake
Russia as the biggest oil producer next year, citing the "shale
revolution" that has reshaped the global energy market and
threatens Russia’s budget. Some experts believe this will give
Russia the push it needs to develop industry and shake its heavy
oil commodity dependence.

The current gulf between consumption and productivity is
dangerous, as Russia’s future generations can’t live off high oil
prices in the long-term.

Boosting industry

Medvedev said in the next five years his government will
prioritize increasing the number of factories and plants to
modernize Russia’s innovation potential. By 2020 this should
create and modernize 25 million industrial jobs.

Food, meat, milk, canned goods, construction, mining, metals, and
auto industry are some of the top "break-through" industries that
dominated domestic production in 2013.

In November Russia’s industrial production fell for the tenth
consecutive month, according to data from Rosstat, the state
statistics bureau. Industrial output hasn’t grown since the
fourth quarter of 2012.

Overall growth has stagnated, but some regions are experiencing
robust activity- the southern region of Astrakhan, for example,
posted 20 percent growth in the first 10 months of 2013, and
Irkutsk - 12.8 percent.

Russian industrial workers faced massive lay-offs as a result of
the 2008-2009 financial crisis, which caused the sector to
stagnate. Increasing total industrial output can only come from
within Russia, and will depend on government incentives for
workers. The current minimum wage in Moscow is $385 per month,
Interfax reported Tuesday.
State-owned companies have been ordered to purchase more goods
and services from small and medium-sized businesses.

“Business, it’s always a risk, but the government intends to
hold onto investors and those who are ready to build their own
business,” Medvedev said, stressing the importance of
replacing old and inefficient industrial practices.

In the next seven years, the government along with foreign
investors will pump money into country-wide infrastructure
projects including an overhaul of the Trans-Siberian railway, a
high-speed train line connecting Moscow and Kazan, and
construction of the ring road on Moscow’s city limits.

The spillover
of Europe’s debt crisis has hit Russia hard, with GDP growth
unlikely to exceed 2 percent in 2013.